This appeal raises a novel question of interpretation of the Anti-Eviction Act, N.J.S.A. 2A:18-61.1 et seq.

Plaintiff Morristown Memorial Hospital, a nonprofit hospital corporation (hospital), has for some years functioned not only as a community hospital but also as a post-graduate teaching facility. It is represented to us that there are currently some 82 students and residents involved in the hospital's educational and training programs, most of which are of one year's duration.

Some of these students and residents and their families are housed on hospital property. Some make their own living arrangements. Twenty-six of them are subtenants of apartments which the hospital has leased since the mid-1960's. These 26 apartments are in a 140-unit apartment complex now owned by defendant located across the street from the hospital itself.

Pursuant to the original arrangement between the hospital and the former owner of the apartment complex, an arrangement predating the Anti-Eviction Act, the hospital, as tenant, entered into a written one-year lease for each of the 26 apartments. Each lease was annually renewed thereafter by successive one-year extension-of-lease agreements. Although each lease contained the customary provision prohibiting assignment or sublease without landlord's consent, it nevertheless appears that the original owner gave what was tantamount to a blanket prior consent to the subleasing of the apartments by the hospital to such of its personnel, usually medical residents, as it selected. The hospital, as tenant, paid the rent on all 26 apartments by a single monthly check, deducting appropriate amounts from the salary of the occupants. It also claims to have undertaken a voluntary inspection and maintenance program covering the 26 apartments. On those occasions when an occupant vacated prior to the expiration of a year's tenancy, the hospital routinely placed another of its employees in the vacated apartment on an emergent, temporary basis pending the arrival of a new one-year resident.

In 1982 the apartment complex was purchased by defendant Wokem Mortgage & Realty Co. (Wokem). Wokem refused to renew the leases on the ground that the nature of the tenancy was encompassed neither by the Anti-Eviction Act nor by the municipal rent-levelling ordinance. The hospital, accordingly, brought this declaratory judgment action seeking an adjudication that its tenancy of the apartments was within the scope of both the state and the municipal legislation. Wokem appeals from a judgment entered in the hospital's favor following a non-jury trial. We reverse.

The dispositive issue is whether the nature of the arrangement between the hospital and the original landlord and the consequent implementation of that arrangement bring the tenancy here within the ambit of the Anti-Eviction Act. The consequence of Anti-Eviction Act classification is significant. If the tenancy is encompassed by the act, then the landlord is, by virtue of N.J.S.A. 2A:18-61.3, obliged to continuously renew the 26 leases except for good cause as defined by N.J.S.A. 2A:18-61.1. In effect, then, the hospital's lease of the 26 apartments would be, at its option, virtually in perpetuity, subject only to such rent increases as the rent-levelling ordinance permits. The hospital, moreover, would enjoy, to the exclusion of the landlord, such incidents of ownership as tenant selection and would deprive the landlord of the customary prerogative of seeking the obvious benefits of a stable and long-term occupancy for each of the 26 apartments.

N.J.S.A. 2A:18-61.1 affords the protection of the act to the "lessee or tenant or the assigns, under-tenants or legal representatives of such lessee or tenant" of specified premises "leased for residential purposes." While it would appear, therefore, that these 26 units come within the literal definition of a protected tenancy since they are used for residential purposes, we are nevertheless persuaded that that conclusion is contrary not only to the policy of the act and its legislative intent but also to its substantive provision.

In the view of the trial judge, the decisive fact here was the residential use of the apartments in accordance with the hospital-tenant's plan of providing living accommodations for its transient personnel. Certainly, from the perspective of the hospital's subtenants, the units are both occupied and leased for residential purposes. But from the perspective of the tenant-hospital, the residential purpose of each of the leases is not an end in itself but is rather incidental to and a means of serving its ...

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